Inflation to ease from Q4FY25, says RBI Governor Shaktikanta Das; warns of risks amid geopolitical tensions

Inflation is expected to gradually decrease starting from the last quarter of the current financial year, according to Reserve Bank of India (RBI) Governor Shaktikanta Das. However, he also warned that escalating geopolitical tensions and unpredictable weather patterns pose significant risks to this outlook. 

“The trajectory of headline inflation is projected to moderate sequentially from the last quarter of this financial year. Major upside risks to the inflation forecast include unexpected weather events and deteriorating geopolitical situations,” Das said during the Macro Week event organized by the Peterson Institute for International Economics (PIIE) in Washington on October 25. 

Retail inflation, or Consumer Price Index (CPI), surged to a nine-month high of 5.49% in September, largely due to rising food prices, after easing to 3.6% in July and 3.7% in August. For FY25, the RBI anticipates inflation will average around 4.5%, with a long-term goal of reducing it to 4% sustainably. 

Das also stressed the need for reforms in the international financial system to better address the challenges faced by emerging economies amid a changing global economic environment. 

“Reforming the international financial architecture should be the top priority. This includes establishing inclusive global governance frameworks that reflect the realities of today’s economy,” he said. 

He emphasised that institutions like the International Monetary Fund (IMF) and the World Bank should provide emerging economies with greater access to resources and a more significant role in decision-making processes. 

“Greater access to resources and a stronger governance role in institutions such as the IMF and World Bank will enhance their legitimacy and promote more effective global cooperation in tackling macro-financial challenges,” Das noted. 

The RBI Governor expressed concerns about the structural weaknesses in the global monetary and financial systems, highlighting that recent events have revealed vulnerabilities affecting both advanced and emerging markets. He called for stronger global financial regulations to manage risks associated with private capital flows and the increasing influence of non-bank financial intermediaries. 

Das also cautioned against the risks posed by the rise of shadow banking, fintech, and decentralised finance, which complicate the global financial landscape. He advocated for a more robust regulatory framework to mitigate potential contagion effects, stressing that financial stability should be considered a “global public good.” 

Addressing the impact of geopolitical tensions on global economic policies, Das remarked that actions such as sanctions, trade restrictions, and supply chain disruptions are leading to economic fragmentation. He highlighted the need for countries to secure supply chains in critical sectors, including energy and strategic materials. 

Governor Das underscored the vital role of the G20 in fostering unity and preventing further economic divides, asserting that inclusive and balanced reform of the international financial architecture is crucial for global stability. “The G20 must take a leading role in preventing economic fragmentation by promoting open markets and securing supply chains,” he concluded. 

(With inputs from agencies)